Mazda’s withdrawal from AutoAlliance, its Flat Rock, Michigan-based joint venture with Ford, is a clear indication of the manufacturing challenges faced by smaller, more marginal vehicle manufacturers in the US. Mazda appears to have reasoned that trying to make money out of a heavily unionised and low-volume manufacturing plant in the US is a losing battle; far better to build a new plant in a low cost location (Mexico) and use this as a springboard to expand into one of the fastest growing markets (Brazil). This news, which had been long trailed in the automotive press and on-line forums, was preceded by reports that Mazda would join the stampede to build new vehicle assembly plants in Russia.
Mazda, however, seems likely to break with tradition in Russia. All the new vehicle plants being built in Russia will be in or around St Petersburg, Moscow or Kaluga (to the south of Moscow); by contrast, Mazda will reportedly build its new plant in the Russian Far East. The Russian deal has yet to be fully confirmed, but the logistical and practical implications of this decision (especially in view of the prevailing climatic conditions in the Russian Far East) will surely present a number of new challenges to the supply chain and general operations of the venture.
Mazda appears to have reasoned that trying to make money out of a heavily unionised and low-volume manufacturing plant in the US is a losing battle; far better to build a new plant in a low cost location (Mexico) as a springboard to one of the fastest growing markets (Brazil).
Labour costs are rising rapidly and seemingly inexorably in the established vehicle assembly locations in Russia; one industry insider, who wished to remain nameless, told this writer off-the-record that his company wished it had not chosen St Petersburg for this reason. Maybe Mazda’s decision to move to a new automotive frontier will prove very prescient.
Mazda’s new plant in Mexico, which is being built at Salamanca in the central state of Guanajuato, represents a change in regional strategy for Mazda. The plant will make the small Mazda2 and compact Mazda3; the accompanying engine plant will make four-cylinder units, clearly suited for these models, but also reflecting the move to smaller engines in general across the market as OEMs downsize their engine offerings to meet tougher CO2 emissions and fuel consumption targets.
Of course, Mazda may have another motive for the Mexican plant: as a supply point for the US market itself.
Mazda is using Sumitomo as a 30% partner in the production venture in Mexico and in a parallel new sales operation in Brazil. The rapidly growing Brazilian market has been designated as the major market for the Mexican-built vehicles. Given the scale of investment by other OEMs in Brazil, it seems odd that Mazda has chosen to build a new plant outside Brazil which is said to be the main market for this plant’s output. Mexico and Brazil have been talking about a free trade agreement between the two countries since 2009, and Mazda may be betting on the two countries concluding a free trade agreement, but this seems some way off; in the absence of such an agreement, tariff barriers may make exporting from Mexico to Brazil uneconomic.
Of course, Mazda may have another motive for the Mexican plant: as a supply point for the US market itself. Fiat and Ford are leading the way with the Mexican-built 500 and Fiesta sold in the US, a market which is moving to smaller vehicles with much smaller engines than have predominated until now. It would not be surprising to see Mexican-built Mazdas on US roads later in the decade.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Ian Henry is a director of AutoAnalysis, an independent automotive research and consulting company based in London.
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